Euro area bond yields edge down before US CPI

By Stefano Rebaudo

Jan 15 (Reuters) - Euro area benchmark Bund yields edged lower on Wednesday, breaking a 10-day rising streak, as investors awaited U.S. consumer price inflation figures later in the session.

Strong economic data and fears that U.S. President-elect Donald Trump's policies could boost inflation have driven yields up on both sides of the Atlantic since early December.

Germany's 10-year government bond yield DE10YT=RR dropped 1.5 basis points (bps) to 2.61% after hitting a fresh 7-month high at 2.63%.

Germany's 2-year bond yield DE2YT=RR, more sensitive to European Central Bank rate expectations, fell 2 bps to 2.3% after hitting a fresh 2-1/2-month high at 2.323%.

Money markets priced in a European Central Bank deposit facility rate at over 2.1% at the end of 2025, from 1.8% in early December EURESTECBM8X9=ICAP.

Italy's 10-year yield IT10YT=RR was down 1.5 bps at 3.82%.

The gap between Italian and German yields DE10IT10=RR -- a gauge of the risk premium investors demand to hold Italian debt -- held steady at around 120 bps.

The yield spread between French and German yields DE10FR10=RR stood at 84 bps, after French Prime Minister Francois Bayrou on Tuesday opened the door to renegotiating a disputed pension reform in a bid to win over left-wing lawmakers he needs to pass the 2025 budget. Such a move could increase market concerns about the government's ability to curb a burgeoning public deficit.

(Reporting by Stefano Rebaudo; Editing by Bernadette Baum and Jacqueline Wong)

((stefano.rebaudo@thomsonreuters.com))